Question

In: Accounting

Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Elliott Engines Inc....

Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate

Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:

Budgeted Volume
(Units)
Direct Labor
Hours Per Unit
Price Per
Unit
Direct Materials
Per Unit
Pistons 12,000 0.30 $46 $22
Valves 18,000 0.15 11 4
Cams 4,000 0.20 61 26

The estimated direct labor rate is $26 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $269,800.

If required, round all per unit answers to the nearest cent.

a. Determine the plantwide factory overhead rate.
$ per dlh

b. Determine the factory overhead and direct labor cost per unit for each product.

Direct Labor
Hours Per Unit
Factory Overhead
Cost Per Unit
Direct Labor
Cost Per Unit
Pistons dlh $ $
Valves dlh $ $
Cams dlh $ $

Feedback

c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.

Elliot Engines Inc.
Product Line Budgeted Gross Profit Reports
For the Year Ended December 31, 20Y2
Pistons Valves Cams
$ $ $
Product Costs
$ $ $
Total Product Costs $ $ $
Gross profit $ $ $
Gross profit percentage of sales % % %

Feedback

d. What does the report in (c) indicate to you?

Valves have the lowest  gross profit as a percent of sales. Valves may require a higher  price or lower  cost to manufacture in order to achieve the same profitability as the other two products.

Solutions

Expert Solution

a. Plantwide factory overhead rate : $ 38 per DLH

Total direct labor hours = 12,000 x 0.30 + 18,000 x 0.15 + 4,000 x 0.20 = 7,100

Plantwide factory overhead rate = Budgeted Factory Overhead / Direct Labor Hours = $ 269,800 / 7,100 = $ 38 per DLH

b.

Direct Labor Hours per Unit Factory Overhead Cost per Unit Direct Labor Cost per Unit
Pistons 0.30 $ 11.40 $ 7.80
Valves 0.15 5.70 3.90
Cams 0.20 7.60 5.20

c. Elliot Engines Inc.

Product Line Budgeted Gross Profit Reports

Pistons Valves Cams
Sales Revenue $ 552,000 $ 198,000 $ 244,000
Product Costs
Direct Materials 264,000 72,000 104,000
Direct Labor 93,600 70,200 20,800
Factory Overhead 136,800 102,600 30,400
Total Product Costs 494,400 244,800 155,200
Gross Profit $ 57,600 (46,800) $ 88,800
Gross Profit % of Sales 10.43 % - 23.64 % 36.39 %

d. Cams are the most profitable, while valves are the least profitable. Valves have a negative gross profit margin. Either selling price of valves are needed to be increased, or manufacturing costs are needed to be decreased. Allocation of factory overhead under traditional costing and the prudence in using a plantwide overhead rate may need to be looked at.


Related Solutions

Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Elliott Engines Inc....
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows: Budgeted Volume (Units) Direct Labor Hours Per Unit...
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Elliott Engines Inc....
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:               Budgeted Volume (Units)            Direct Labor Hours Per         ...
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Elliott Engines Inc....
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows: Budgeted Volume (Units) Direct Labor Hours Per Unit...
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Isaac Engines Inc....
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Isaac Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Isaac Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows: Budgeted Volume (Units) Direct Labor Hours Per Unit...
The company uses a single plantwide factory overhead rate. The budgeted Factory Overhead Costs for the...
The company uses a single plantwide factory overhead rate. The budgeted Factory Overhead Costs for the year are $1,400,000 and allocates factory overhead based on direct labor hours. The company plans to make 100,000 shirts and 50,000 pairs of pants. It takes 2 direct labor hours to make a shirt and 3 direct labor hours to make a pair of pants. What are the total number of direct labor hours? What is the single plantwide factory overhead rate? Answers should...
Single Plantwide Factory Overhead Rate The total factory overhead for Bardot Marine Company is budgeted for...
Single Plantwide Factory Overhead Rate The total factory overhead for Bardot Marine Company is budgeted for the year at $1,305,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboat and bass boat each require six direct labor hours for manufacture. Each product is budgeted for 7,500 units of production for the year. When required, round all per unit answers to the nearest cent. a. Determine the total number of budgeted direct labor hours for the year....
Single Plantwide Factory Overhead Rate The total factory overhead for Bardot Marine Company is budgeted for...
Single Plantwide Factory Overhead Rate The total factory overhead for Bardot Marine Company is budgeted for the year at $1,100,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboat and bass boat each require five direct labor hours for manufacture. Each product is budgeted for 8,000 units of production for the year. When required, round all per unit answers to the nearest cent. a. Determine the total number of budgeted direct labor hours for the year....
Single Plantwide Factory Overhead Rate The total factory overhead for Bardot Marine Company is budgeted for...
Single Plantwide Factory Overhead Rate The total factory overhead for Bardot Marine Company is budgeted for the year at $1,710,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboat and bass boat each require four direct labor hours for manufacture. Each product is budgeted for 9,000 units of production for the year. When required, round all per unit answers to the nearest cent. a. Determine the total number of budgeted direct labor hours for the year....
Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion Pineapple Motor...
Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion Pineapple Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Pineapple: Assembly Department $224,000...
Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion Eclipse Motor...
Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Eclipse: Assembly Department $280,000...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT